Deciding on a Business Entity? Here Is A New Business Entity Selection Summary Reference Chart

As a Certified Public Accountant (C.P.A.) and Attorney, I have had my share of questions from clients regarding which type of entity a person should set up if they want to start a business. Moreover, as this is a complicated area, some advisors often give misleading and unclear advice on the topic. As a result, A few months ago we published an article that summarized the considerations as well as the advantages and disadvantages of the different business entities. (LLC, Corporation, or Sole Proprietorship) To read this full article click here. Some clients asked us for a summary that they could access at a glance so we created this handy chart below. Turn to Scott Legal Services, P.C. at www.legalservicesincorporated.com for all of your New Business needs. Contact us for a free consultation at 212-223-2964. Here is your handy summary that you can turn to when deciding on a legal entity.

Corporation

LLC

Sole Prop.

Who Is This Entity Perfect For?

Multiple owner business who do not mind complying with administrative formalities and where the exposure to personal liability & complex tax planning is a primary concern.

Sole or multiple- owner business where owner(s) need(s) limited liability but want to be taxed as an individual. Many who consider an LLC also consider an Corporation where they elect S-Status as the LLC & “S-Corp” entities have similarities.

Sole-owner business who want limited compliance responsibilities where taxes or liability (risk of being sued) are not a concern.

Number of Owners

1-100 (for S); More than 1 (for C)

One or more

One

Types of Owners

Limited to U.S. residents (people who file taxes as U.S. residents) and citizens and to certain trust/estate (for S);Any (for C)

Any

Any

What are the Advantages?

Limited liability; Capital is easy to raise through sale of stock; Tax savings through income splitting (C only)

Limited liability; Capital is easy to raise through sale of interests; Pass- through taxation to personal income tax return; Unlimited number of owners & no restrictions on owners.

Inexpensive to form; Few administrative duties.

What are the Disadvantages?

More administrative duties; S Corp must have fewer than 100 shareholders and owners must be resident aliens.

Can be costly to form due to publication requirement.

No tax benefits; Unlimited liability; Business dissolves upon death of owner.

Cost of Formation

Moderate

Expensive due to Publication requirement.

Low

How easy is it to set up?

Most difficult as you must appoint a board, develop articles of incorporation, bylaws and follow other formalities.

Not difficult but you must create an operating agreement and meet the publishing requirements in your State.

Easy

What happens if someone wants to sue the business? Am I protected?

Corporation is a separate legal entity & if someone sues and wins, they cannot come after your assets. This is called “limited liability protection.”

Same as Corporation.

You and the business entity are the same person. If your business is sued and the business does not have enough money, they can come after you.

Will I be subject to tax on the income the business makes and my personal income? Said another way, will I be subject to “Double taxation.”?

Yes unless you elect for S-Corp status. The election is free but if you elect this you must be a resident for tax purposes and you will have other ownership restrictions.

No. The income from the business is automatically passed through to your personal income tax return so you are not subject to double tax.

No

Can I make an S-election?

Yes

Yes

No

Do I pay Income taxes?

Yes

Yes

Yes

Do I have to pay Self-Employment Taxes?

Yes – but if you make an S election, you will only pay self-employment taxes on the amount you designate as your salary. (This salary must be reasonable to qualify)

Yes – but you can make an S – election so that you only pay self-employment tax on the amount you designate as your salary.

Yes

If I am a Professional, do I have to set up as a Special Entity?

Yes. You must set up a professional corporation and the requirements will be outlined by your State. Also, you must buy malpractice insurance.

Yes. You must set up a professional LLC and the requirements will be set up by your state. Also, you must buy malpractice insurance.

No

Still Have Questions?

At Scott Legal Services you have both a lawyer and a C.P.A. to help you as our founder Ian E. Scott is a qualified C.P.A and a Lawyer! While you do not have to hire a lawyer to set up a business, the choice of business form has significant tax, financial and liability implications that you should carefully consider so that you set up your business the right way. Let Scott Legal Services, P.C. be your guide. If you require further assistance, please contact Scott Legal Services, P.C. at 212-223-2964 or email us at iscott@legalservicesincorporated.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

- hide

Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.